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Essays on International Asset Management: Evidence for Developed West and Emerging East

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Marina Nikiforow

Asset management is a global business, spreading from developed financial centers to emerging and transition markets. Empirical analyses of professional investors’ investment processes are justified not only by their key role in the traditional finance theory, as rational agents contributing to market efficiency, but also by the behavioral finance, finding evidence on irrational biases in their investment behavior. This study provides survey evidence on views and investment behavior of 772 fund managers from 274 investment companies in the USA, Germany, Thailand, Russia and Ukraine. New insights are gained on the persistency of behavioral biases. Cross-country comparisons shed light on fund managers’ information processing and investment behavior in different institutional market settings.

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4. Fund managers’ information processing in the developed West and the emerging Eastern Europe 53

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4. Fund managers’ information processing in the developed West and the emerging Eastern Europe38 4.1 Introduction Sound information processing is the basis for intelligent decision-making within fiduciary asset management. This global business has spread from developed financial centers to emerging and transition39 markets. The latter are typically characterized by underdeveloped institutional and regulatory settings, low market efficiency and transparency. Such differing investment environments compared to developed markets are likely to leave their mark on fund managers’ investment practices, even though basic investment theories are the same worldwide. Knowledge about fund managers’ information processing in markets at different development stages would improve our understanding of their investment behavior, which in turn influences market prices by trades with large volumes of assets. In this context, Bikhchandani and Sharma (2001) argue that information transparency basically determines the way of information processing and information aggregation in the market: In less developed and less transparent markets information is likely to be revealed and priced more slowly, so that price trends and behavior similar to herding40 are likely to occur. Accordingly, herding in opaque markets could be efficient if it were part of a price discovery process, i.e. market participants’ gradual adjustment to slowly revealed changes 38 Helpful comments by Lukas Menkhoff and Torben Lütje are gratefully acknowledged. Furthermore, I would like to thank the surveyed fund managers in the USA, Germany, Russia, and Ukraine for their time offered to respond to the questionnaire as well as their valuable comments provided in our pre-survey interviews....

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